Aveng Limited (UG8.F) Earnings Call Transcript & Summary

Good morning to you, all, and welcome to the Aveng Interim Results Presentation for the 6 months ended 31 December 2023. The agenda for this morning is I will give an overview of our achievements over the last 6 months. And as always, Adrian Macartney, our Group CFO, will present the detail of our finances. We're also joined today by Scott Cummins, who is the incoming Group CEO. Welcome, Scott.

Thank you.

You will recall that we put out an announcement in November last year that I would be retiring at the end of February this month (sic) [ next year ], and that Scott would succeed me as Group CEO. Scott will spend time in our presentation today on some key messaging and the outlook for the next 6 months. That's a photograph of one of the very large excavators that -- face shovels that we have acquired for the Tshipi contract. So the first thing to note here is that for the first time, and Adrian will talk to this a little bit more later, we are reporting our results and our numbers in Australian dollars. We include on all of our slides the rand equivalents as confirmation of -- for those who, like me, still think in rands. A very important message on this slide is that notwithstanding the difficulties we had on a contract in the Philippines in the second half of last year, the group has immediately returned to profitability and positive cash generation in the first 6 months of the FY '24 financial year. You see our revenues are up from $1.1 billion to $1.5 billion. Our operating earnings up from AUD 7.8 million to AUD 15.5 million. Our headline earnings are up to $11.3 million from $6.5 million. Our headline earnings per share up from $0.052 per share to $0.088 per share. Our work in hand is up at $3.6 billion. Unfortunately, that has gone backwards slightly in the 6 months, and we'll talk to that as we go through the presentation. And our cash is up from AUD 190 million to AUD 250 million. So as management, we are reasonably satisfied with the performance in the first 6 months, and we will talk to some of the improvements we still need to make to achieve all of our objectives. We had, in our year-end results 6 months ago, a number of key focus areas, and we thought we'd give you some feedback on how we're progressing. So on the left of that slide, we set ourselves a target of immediately returning to profitability and cash generation. And as I've already pointed out, we achieved that in the first 6 months, notwithstanding the impact that hyper escalation has had on some of our projects in Australia. We have an objective of improving the quality and the consistency of our operating margins, and this continues to be a significant focus area, which Scott will talk about later in the presentation. We have a focus of strengthening the McConnell Dowell balance sheet and settling term debt. And satisfyingly, we paid back a further $10 million of the term debt in the period and the balance of the $13 million -- balance of $13 million will be settled by June 2024. We continue to focus on diversifying Moolmans client, commodity and geographic focus, and we have a number of prospects that we are pursuing at present. We've continued to derisk and wind down the group legacy matters and including continuing to sell off some of the investments we have, settling some of the old contracts and winding down the remaining performance bonds that we have in the group. A very concerted focus on succession planning and capacity building. And as we put out in our announcement in November, we -- Scott has appointed -- been appointed as the Group CEO from the 1st of March and succeeds me. Scott will also talk to some of the other significant leadership changes that we have made in the period. And we continue to target a 3% operating margin. We are 6 months into the '24 target we have set, and we are making progress, but still work to be done there. So in the 6 months, there've been a strong focus on improving operational performance and returns in McConnell Dowell. The revenue improved by 42% to $1.4 billion from the comparative period. We've had a really good performance out of New Zealand and the Pacific Islands and Built Environs, both business units performing at least at their planned margins, if not above. We have successfully managed the significant threat of hyperinflation across Australia, notwithstanding there has been some erosion of our margins. That -- those costs have, however, been mitigated by the strategy we had in place of pursuing alliance model contracts. You'll recall, and you'll still see on the slide at the bottom, bottom right next to the picture, that still 40% of our revenues in McConnell Dowell come from alliance-type contracts, which have our downside protected at 0 margin, but all of our costs paid. Our operating earnings were at $24.2 million for the period, up from $15 million in the comparable period last year. Our operating free cash at $83 million and a cash balance of $246 million at 31 December. New work won in the period was $952 million, and Scott will talk to the market a bit later in the presentation. Our planned revenue for 2024 is secured, and we are -- we already have 64% of our forecast revenues for FY '25 secured with a number of prospects that are in adjudication at present. Our lost time injury frequency rate has deteriorated slightly in the period, but we're confident that by year-end, we will achieve the targets that we have set. You can see there then the makeup of our revenues, still 81% of our revenues in Australia, 13% in New Zealand and the Pacific Islands and 6% in Southeast Asia. Our Built Environs business revenues are in that Australian 81%. Moving to Moolmans. So we continued with our fleet renewal strategy in Moolmans, and that positions us for future profitability on both existing contracts and on new prospects that we are pursuing. Revenues at $135.9 million, 11% higher than the previous period. Operating earnings at $1.9 million, slightly ahead of where we were in the first half of FY '23. And then as I've said, we've continued to invest in our heavy mining equipment through our fleet renewal program. This includes refurbishment and new equipment adding to our fleet. And importantly, the fleet that we acquired for Tshipi is now fully commissioned and in the pit. And then we also have a process in place to dispose of noncritical and redundant assets, and we'll see that continuing into the second half of this financial year. Pleasingly, the Tshipi production levels have improved quarter-on-quarter, and we see that continuing into the second half of the year. Diversification, as I said, remains a key priority, and we closed the first 6 months with ZAR 6.8 billion of work in hand. Again, our lost time injury frequency rate is not quite yet at our target, but we're confident that we'll achieve that by the end of the second half of this financial year. 100% of our revenues in South Africa, that is an area that we are focused on and diversifying out into other parts of particularly SADC and West Africa. And the bulk of our work, as you can see, in manganese, which is a function of the Tshipi contract. So I'm going to now hand over to Adrian, and who will take us through the details of our finances.

Thanks, Sean, and good morning, ladies and gentlemen. Move on, please. This is the Bridgewater Bridge in Tasmania. We were very fortunate to go and have a look at the project last year and looking forward to getting down there to seeing the progress over the course of the next couple of months. Some amazing flyover videos on our social media accounts, if you'd like to watch the progress. If we turn over to the change in reporting currency, as Sean has said, in the first instance, this has been a natural progression for our group. It follows really the successful disposal of the Trident Steel business last year, and we reevaluated the spread of our business and our transactional currencies and our balance sheet. The Australian dollar better reflects the majority of our transactions, our assets and liabilities and of course, how management views the business and how we make decisions about the business. We, of course, do remain domiciled in South Africa and on the JSE, but -- and our functional currencies remain the same. And particularly, you'll note in some of our commentary, we still refer to rands for the Moolmans business, and we've endeavored to provide you with both Australian dollars and rands, and there are supplemental schedules with our financial information, providing rand information at the back of our presentation. If we move on to the actual numbers -- sorry, and I did forget to mention that the -- it's all fully set out in the note for the accountants on the presentation. Under the basis of presentation, you can, of course, work through those notes, and we'll explain to you exactly how we went about this translation process. Please do remember that we are online, and we have questions available if you'd like to pose those questions, and we'll pick up on those at the end of the formal presentation. If we look at the salient features, really group revenues, as Sean has mentioned, have grown quite markedly from the -- just over -- just under $1.1 billion to $1.5 billion. Earnings up in the period. We have in this slide, of course, adjusted for and removed the impact of Trident Steel, but the earnings are up pleasingly in the core businesses, although disappointing margins, and we are very much aware of having to improve those margins. But pleasingly increased to $0.8 million in terms of earnings. The headline earnings are the one to watch. And the difference between the 2 really are some impairments in the Moolmans business, where we have written down some assets as we rationalize that fleet and look at being able to realize those assets. In terms of our investments, heavy mining equipment, some $23.4 million went into Moolmans. That was largely a timing issue. As you may be aware, we had planned to receive quite a bit of equipment prior to the year-end in June, and the delivery of that equipment was delayed and stalled into the first quarter of this period with final equipment really only being commissioned late in September of '23. And so that, of course, did impact the Moolmans results on Tshipi. Our bank balances, as Sean has mentioned, some $250 million. That's after paying back $10 million of our term debt and our bonding capacity sitting at $585 million for McConnell Dowell. We have a small amount of bonds, around about ZAR 80-odd million, still sitting in South Africa related to some legacy projects as those wind down. We closed off the sale of the Imvelo Concession asset and received the proceeds in the period. And pleasingly, this puts us in a position where, for the first time since 2017, Aveng does not have assets or liabilities held for sale on its balance sheet. It really does signal an end of that restructuring period for the company. If we turn over to our comprehensive earnings. And looking at this, revenue from continuing operations, $1.5 billion, gross earnings of $83 million. Again, the margin having declined to 5.5%. We have, I think, as Sean has mentioned, held up the margin in spite of some pretty severe pressure in the cost side of things. The alliance contracting model has certainly assisted us, but margin pressure, cost pressure has played a role in the half. And Scott might talk to that in his overview and forward-looking information later on. Our capital expenses of some $8.2 million, really the impairment there that I'm referring to in Moolmans and our financing expenses up a little in the period in the comparative period. I think notably, the finance expenses, you can expect to grow as we now have the full complement of equipment and full finance charges on board, offset by, of course, as we paid down some term debt at McConnell Dowell. Taxation for us is an odd number, as you all are aware. We have unrecognized losses that we continue to recognize as and when we earn further profits. And so we are not in a taxpaying position in Australia nor are we in a taxpaying position in South Africa, but we are now in a taxpaying position in New Zealand and other jurisdictions. So the tax line is still pretty small for us. Our earnings at $0.8 million improving on the period. And of course, our headline earnings, as I've described. Going over the period and looking in a little bit more detail at the segments. So you can see McConnell Dowell and Moolmans there. The period-on-period revenues up pleasingly in both businesses, gross margins, though under pressure in both. And that's an area that we're turning to in our attention to and hoping to improve in the second half, notably in McConnell Dowell as those cost pressures ease. Earnings for the operating earnings in McConnell Dowell, some $24.2 million, up very nicely from the $15 million reported in the comparative period. And Moolmans pretty flat on its earnings going up from $1.7 million to $1.9 million. Operating cash flows, very strong in McConnell Dowell. Pleasingly there, although we would caution that the operating cash flow has been positively impacted by some settlements of variation claims and some accelerated receipts from customers ahead of the period on a number of our projects. So we're not expecting as positive a cash performance in the second half, unlikely to repeat that $83 million, which is a really strong performance. And when you look at it against the comparative period, that really does talk to the strong growth in the balance sheet, which is in the coming page, you'll see the increase in cash. So if we turn over and we look at the financial position, growth in our total assets, growth in our current assets and our noncurrent assets, everything moving in the northerly direction. We see our FCTR there, still sitting at around about a flat number. And of course, our retained earnings pretty flat on period-on-period. Tax and interest playing their part in reducing that EBIT. Current liabilities up slightly, but of course, offset by the cash on the balance sheet. If we turn to the more detailed breakdown, in our position there, our PPE, you can largely see the $65.5 million improvement in or increased investment in PPE. PPE, of course, property, plant and equipment. I get regularly reminded by the engineers that it's personal protective equipment. But in our language, it's property, plant and equipment. We depreciated, we disposed of some, and we had some impairment losses, giving us our closing balance of some $289 million. In terms of our borrowings, we've split the borrowings out there. You can see the term borrowings of $23 million we started the period with. We've paid $10 million of that down, dropping it down to $13 million, and we will clear the balance of that, leaving the McConnell Dowell balance sheet largely ungeared by June of this coming year. We do have some minor ABFs in McConnell Dowell, but nothing too serious. Our ABF in Moolmans, in the Moolmans business, importantly there, largely about $56 million. We have increased that by taking on some new ABFs. You will also see that there is a growth in our lease, IFRS 16 lease liabilities in the period, and we made some repayments and a little bit of ForEx impact, almost negligible before we get our closing balance. In terms of our working capital, other area usually of interest. We started the period with a negative working capital of some $70 million. We've grown that to $142 million. Our inventories have largely been flat as have our trade and other receivables. Now importantly, trade and other receivables remaining flat on the back of a growth in revenue and the teams really have done a good job in making sure that we have billed clients and recovered. We don't really have a long outstanding debtors book, and that's managed quite tightly. Our contract assets, a little bit down, trade and other payables a little bit down. And of course, our contract liabilities adding to that negative working capital as we have received some cash in advance. So you can expect that to be unwinding over the course of the next 6 months and in fact, already has in this quarter. We have seen the cash balances drop back slightly and as we pay some of those liabilities down. We move to liquidity. Starting the period with some $190 million. We have obviously cash from operations of some $50 million, some working capital changes, another $70-odd million. We effectively brought that cash in. Small finance charges. The CapEx, as we've spoken about, is net and the repayment of our external borrowings, largely there, the UOB number that we've paid them back and a bit of capital portion of lease liabilities again as that lease liability unwinds, leaving us $250 million on the balance sheet, broken down really between South Africa and McConnell Dowell. And you can see there the split in our term facilities and our asset-backed arrangements. Really importantly, as we've said to you before, we will continue to invest in assets and take on debt as it is associated with assets that are able to generate income for us rather than anything else. So really, that is -- that's the financial position. And if I could just turn now to Scott.

Thank you very much, Adrian. So first and foremost, thank you, Sean. 5 years of leadership that has been absolutely valued by us all. And I thank you for the opportunity that's now been created as you pass the baton on to the new leadership team of Aveng. I'm really thankful to have that opportunity, Sean, and we wish you all the very best in retirement, but we're extremely pleased that you remain part of the Board as a Nonexecutive Director. Secondly, I look forward to engaging with you all collectively and individually over the coming years as we continue the Aveng journey. There is no doubt that we have come a long way. There has been excellent progress made in the execution of the group strategy over the past several years. We've disposed of numerous noncore businesses, which is all now complete. The core businesses are profitable and with continued hard work, we are on a pathway to meet our target margins. We have settled legacy debt and derisked the balance sheet. We are now a leaner and more agile organization. And as a consequence of all that has been done, the executive team now has an ability to focus on improved profitability. We no longer have the distractions of what the previous strategy required. As a whole, as a whole of the Aveng, the executive team and myself as the new incoming CEO, we are ready for the next phase. Planning and preparation is complete and an incredible amount of work has been done leading up to the announcement of my appointment, and since my appointment leading up to the effective date of the 1st of March. Our strategic journey now enters a new phase. While our management epicentre shifts to Australia, governance and control remain in South Africa, and we remain listed on the JSE. From the 1st of March, we will implement a new structure. Our new structure aligns more appropriately with our operational activities and will provide an enhanced access to diverse capital markets. As we navigate this exciting future together, we remain dedicated, totally focused and committed to delivering consistent, reliable and profitable results for our stakeholders. We fully understand and are ready to take on the task ahead of us. The foundations are in place. We have 3 strong and well-respected operating brands, which operate in the infrastructure, building and mining sectors. each with a value offering that sets us apart. Each provide differentiation in their respective sectors. A valued partner that delivers higher margins and returns is where we're headed. Now let's talk to the enablers. Solid fundamentals, quality work in hand, the right projects in the right markets with the appropriate risk profile and a sharpened focus on execution. Investment in systems and technologies. A lot has been done in the past and a lot more is going to continue in the future that will drive productivity and create value for our clients. Investment in people. We have an attractive employee proposition. We will continue to make that more attractive. And we will invest heavily in world-class leadership and training with world-class providers developed specifically for what we do as a business. Our new operating structure will be agile, efficient and effective. It will enable us to leverage collective expertise over the entire group to apply our operational standards and governance in a one company, one approach, best practice, clear, concise and applicable to the entire group as a whole. Myself and my executive team are clear on our remit, and we must focus our time and attention very specifically on that remit. As an absolute priority, the mission is to increase the margin percentage of the consolidated Aveng Group. Driven by operational performance, steady, consistent, continuous improvement in profit, cash generation and safety in all areas of business is what we will be doing. We will enhance the role and the impact of the project support governance group, which was developed specifically to address some of the issues of the past. We will strengthen that group and continue to ensure that it applies its knowledge and capability in a manner to ensure continuous profitability. Much has been spoken about the Moolmans fleet. We will continue to renew and optimize the Moolmans fleet accordingly. And as Sean pointed out in the beginning, our work in hand has actually gone down. But what we will do in the pursuit of new work will maintain absolute discipline to ensure that the risk profile is appropriate for us as an organization, giving due consideration to our capacity and capability. We will seek margin, not revenue. We will diversify the Moolmans client commodity and geography focus. Sean has already spoken about that as has Adrian. And we will continue to strengthen the McConnell Dowell balance sheet and settle the term debt in accordance with the planned settlement. We will further develop our environmental, social and governance initiatives. And as they've been spoken in the past, we're very proud with what the company does right across all its operating regions in this E&G space. And a key leadership expectation will be that we will continue the development of our people, build capacity and capability to support our well-articulated medium- and longer-term strategy. And as we embark upon our new structure, we're not looking for anyone. The executive team is in place and ready to go, located in Australia and close to the majority of our business activity. We will be organized as a strong matrix structure, which efficiently consolidates the previous South African and Australian corporate layers. As I've said earlier, it will be a lean and agile structure with all key functions represented at the executive level to deliver near- and long-term expectations. Now let me introduce you to the team. Adrian Macartney, you know very well. So Adrian now joins me in Australia. So welcome to Australia, Adrian, it's great to have you over there. John Meggitt, Chief Commercial Officer. He will drive the commercial acumen that's required in our organization. Steve Collett, Chief Strategy Officer and Chief People Officer. Steve will take us through the next strategic phase to ensure that we have the people capacity and capability to deliver the strategy. Dale Morrison as our Chief Operating Officer, will oversee and drive the operations of our 3 segments: Infrastructure, Building and Mining, namely McConnell Dowell, Built Environs and Moolmans. And lastly, James Glastonbury, Chief Engineering and Innovation Officer. James will lead our position as an engineering-led organization, bringing innovation in all its forms across the group and particularly in those specialist areas where we wish to differentiate ourselves in the market. The structure and the executive team will enable us to fully leverage all of that functional capability over the entire group, and it will enable us to provide operational support and governance across the entire group. And another thing to note as we go through with this new organizational structure is that there is no disruption to the operational business units. Their strategies and tactics all remain in place, and we will continue those with absolute urgency. These organizational changes do one thing, and that is strengthen the entire operation. Now if we have a look across those 3 sectors that we've talked about, infrastructure, there has been a sign of softening of the transport infrastructure market in Australia, but that's not necessarily a bad thing. It has taken some heat out of the market, and we've seen reduced escalation pressures. The demand remains in the market, so we can feel confident that there is going to be a long period of infrastructure need going forward. As a consequence of a softening or a little bit of the heat coming out of the market, our newer contracts are performing strongly. We're finding that the initiatives we put in place to deal with hyper escalation are not only dealing with hyper escalation, but they're now providing us with opportunity as a consequence of the softer market. And at a high level, within the infrastructure market, we're seeing a general trend from transport moving into new energy projects. It will be important that we ensure that we develop our capability with this overall high-level trend. If we now talk to building, the markets in Australia and New Zealand remain strong. We haven't seen any softening in the building market. And that's specifically in the health, education and recreational sectors, which is where the strength of Built Environs lies. Again, the newer contracts are performing very well. The business is now operating scale in 2 states of Australia, South Australia in Victoria and in Auckland in New Zealand. The business performance in the first half of this year was very pleasing, profitable and cash generative. Now to mining. We do recognize that it's a challenging mining environment in South Africa. The Tshipi performance is continuing to improve. It's definitely on a trajectory to where it needs to go. And we are seeking opportunities outside of the South African market, and we are identifying opportunities with existing clients in existing markets, all on a steady path to improved profitability. So I hope that gives you a little bit of an overview of where we're going to be taking the organization going forward. We're obviously very excited about the prospects and now ready to take on any questions that might be coming through, Adrian?

Sure. Thanks, Scott. We've got a few questions. Good morning to you, Roy. Roy, a journalist has posed a question. Is the change in the reporting currency of the group from SA rand to Australian dollars part of a possible journey towards the group seeking an offshore listing? Can you provide an update on this plan and whether this will involve a dual listing in SA and Australia? Perhaps I could just take the front end of that question, which is really, Roy, this was nothing to do with a listing per se. It was to do to what made sense for us as a reporting currency in terms of the majority of our transactions, the majority of our assets and the like and how we operate the business. So it does not necessarily link to that at all, but rather than a currency that makes a lot more sense for us. With regards to an update on the plan and whether this would involve a dual listing in SA in Australia, I think that we have made it known for some time that we are looking at other capital markets. Australia would be a natural home for the group and the majority of its assets. We will continue to explore that. But at this point in time, we have no immediate plans to list in Australia, either as a dual listing or secondary listing into Australia or a primary with a dual listing into South Africa. The second question that Roy has raised is, can you provide an update on what has happened with regard to the legal action instituted against the Aveng's [indiscernible] payment by the Tirisano Construction Fund? Sean, would you deal with that?

Yes. Look, that is still work in progress. Our legal team and the trust's legal team are still talking to each other and working out the way forward. So there's been no resolution yet. But clearly, it's in everybody's interest to find that resolution as soon as possible and preferably without a fight.

Next one down is from Mark [indiscernible]. What are your -- what are maybe strategic opportunities to apply $250 million in cash? And what levels are required to facilitate growth in performance bonds on projects? If you don't mind, I'm going to take that as well. So Mark, again, $250 million in cash needs to be balanced against our negative working capital. It's not cash to be paid out. It is, in fact, the counter of the negative working capital, and it is cash that we make use of on a day-to-day basis. We don't run general banking facilities in McConnell Dowell, and we would typically make use of our cash day-to-day. I'm going to interpret the question around the bonding is really are you asking, do we have sufficient performance bond facilities in place relative to the growth in revenues. Yes, that's pretty much something that we monitor on an ongoing basis. We track when we expect to see the bonds coming off as they returned and what new bonds come on, and we manage ourselves in line with that relative to our work in hand and our anticipated work in hand. That said, there is some cooling in the Australian market, as you've heard. And so we might not see the rapid growth in our revenues that you've seen over the course of the last 2 or 3 years continuing in -- perhaps in the next year. David Fraser from Peregrine. Can you please assist me to understand the capitalization of the jack-up barges? Were these assets purchased externally in this period, where we already owned by the group and then capitalized to the balance sheet with an income statement credit? What is the amount of the capitalization? Again, if probably take that one. David, so these were -- this was a barge that was being rented on to a project. The project was for a large international mining house. We're building an offloading facility for them. And the party that we were renting from decided they wanted to sell the barge. Between ourselves and our client, we decided it was -- it made strategic sense to acquire the barge to see it out through the project. and agreed that we would be able to acquire it either between us and the client would sell it or acquire it at the end. So it was a project asset, and we have capitalized it at the price that we purchased it from the external party, and that was $13 million. Again, David, asking, despite the new equipment at Moolmans and the gross margin has reduced significantly, please articulate how you'd expect to generate a decent return on assets in this business without a significant lift in the price structure.

Okay. So David, thank you. Maybe there's a question I can answer. So I guess what was important for me, David, as I learn about the Moolmans business is wanting to see a path of steady improvement. And the team has taken me through where they've been over the last 12 to 18 months. And so as I can see that steady improvement, and it's that what I was looking for. So clearly on the right path, clearly getting the production levels up. So it is my belief that we continue to work the strategy that's put in place, and it will, therefore, take us to the results that we're expecting. It's not going to happen instantaneously. It doesn't. We've got to continue with our fleet renewal program, and we've got to continue with optimizing our fleet overall and continue with what we're doing with that organization, and we will continue that path of steady improvement in performance out of Moolmans.

Thank you. And then if we look at Mark Naramore. When are you expecting McConnell Dowell to pay dividends to the group? Can you give guidance on the likely quantum? Happy to take that. Yes. Again, Mark, we will pay down our debt in McConnell Dowell in the first instance up to the period of June. We will balance that against the needs of our covenants, and we look at our total debt exposure in terms of bonding relative to the size of our balance sheet. We need to balance against that, and we need to grow that balance sheet capacity. And then we would look at that balance sheet capacity essentially our net tangible assets, and we would look at that relative to our cash flows and available cash and then consider paying a dividend. We have previously paid dividends of some 50% of profit after tax. That's what we've been doing for the last probably 2 years out of McConnell Dowell. And I would imagine that we would move back to something similar to that going forward as soon as we're comfortable that, that balance sheet is appropriate. Next question from Mark [indiscernible]. What is the current market position in renewables? And how are you planning to grow capacity in this segment?

Okay. Thank you. Thank you, Mark. There's a steady progression. As I said earlier, that we're seeing maybe a little bit of a slowdown in the infrastructure market and a general trend towards renewables, new energy. And fortunately, McConnell Dowell is already in that space with the Kidston project, which is the conversion of a past gold mine into a pumped hydro scheme. So in terms of where that market is in Australia, in that respect, McConnell Dowell is right there at the forefront. So we're getting the experience first. We're developing our people. We're building up the capability to execute that project and making quite a brand position in pumped hydro schemes. We're also in discussions with another client about another prospect for another pumped hydro scheme. In other areas, renewables, offshore wind, for example, we wouldn't be out there doing the major installations of offshore wind, but there's a lot of nearshore structures that need to be put in place to be able to support that type of renewable energy. So we will be looking for our participation in those projects as they come online and as they get developed, where we can find our niche, our position, where we can bring our capability in our specialist areas to service those projects that may or may not necessarily be the entire project. It might be portions of those developments where we can differentiate ourselves and bring our capability.

Okay. From Rowan [indiscernible]. Rowan, welcome back. Is a capital-intensive business like Moolmans appropriate for the group? And is it expected to generate enough cash to justify its presence as a core asset? I think I'll just comment there. So in the first instance, we actually see a Moolmans business that can contribute to the infrastructure building and mining combination in the group that gets us to an appropriate return for the overall group. There are 3 different businesses requiring 3 different levels of capital and the returns on the capital-intensive business obviously help to balance the lower returns on a business like building. And so yes, we do see it. That said, we've got to see it in the context that Moolmans has not had a capital investment in it over the course of probably the last 10 years. And so we do have to reinvest in that business in order to create a cash-generating asset going forward. So our thinking is that, yes, you can generate the returns. In the short term, you do need to reinvest in that business as both Sean and Scott have referred to. Again, from Rowan, what is the target operating margins in McConnell Dowell and Moolmans? I think that we have -- we've set out in the results that we have a target to achieve -- the next target to achieve is really to get the 3% EBIT combined across the whole group. And then [ Siyabonga ] has asked, is there any possibility that Aveng will reenter the SA construction sector within the next 5 years? If not, why not?

I'm happy to answer that. I mean, right now, I think the focus is clearly on the markets, the segments and the brands that we have, Moolmans, McConnell Dowell, Built Environs, infrastructure, building and mining. That's certainly going to be taking all my time and attention and my executive team. So we don't have any plans, strategic plans at this particular point in time to reenter the infrastructure or construction market in South Africa.

Thanks, Scott. And then again, Mark [indiscernible], can you comment on the margin performance between McConnell and Built Environs and the outlook for the building market?

So out of those 2 brands, McConnell Dowell provides the higher margin, but it also takes on higher risk as well that's associated with that. And the building is -- building market is a lower margin, but very, very cash generative, very cash positive business. As I said earlier on, the building market in the markets that we're in South Australia, Victoria and Auckland is very positive. And it's not only the market in general, it's the market related to the areas of health, recreation and education, which is where Built Environs is differentiating themselves as having that specialist skill. And not everybody can build hospitals. For example, they're very complex. They're quite involved, but the work that we've done in that space now in a regular repetitive manner which began in South Australia, which has now been exported to Victoria and Auckland has been truly impressive. And the competition in that field is less. So that will be -- that will form a continuing part of the strategy for Built Environs going forward. I would like to add that there are also opportunities where Built Environs and McConnell Dowell infrastructure and building work together, where they each bring their expertise. Works in railways, for example, where we're redoing the railway, but then it also involves a station. And in that way, we can bring building environments into the mix. So we've got that in-house capability in both of those areas. So those internal joint venture partnerships are proving to work well for us. And again, that's something that a lot of our competitors cannot bring to the table, but we can and something that's valued by our clients.

Those are all the questions that we have for the moment.

Okay. So.

Wait. Just come in, sorry. Is there any remaining influence or effect of the troubled Philippines contract that we saw in H2 of last year in the income statement balance sheet or cash flow statement? The LNG.

Well, operationally, the facility is up and running. It's working as required by the client. We have a team that remains up there right now on a reimbursable type contract that's supporting the operations, the continuing operations of that. We expect them to finish up that work in a couple of months' time. There's always -- with anything that we build right across the group, we need to ensure that our warranty remains for the ongoing years, and we'll be doing any work that's required to be done for a warranty aspect, but we're not expecting anything of any significant nature in that regard. So it's all coming to an end, thankfully, and we move forward.

Another question by Rowan [indiscernible]. Can you contractually protect yourselves against issues experienced like WBHO and Murray & Roberts in Australia? Is there any risk that chasing margin increases risk too much?

Well, let me answer the first question first. And I think as Sean pointed out in one of his slides, from a portfolio aspect, we think that it makes a lot of sense to have approximately 1/3 of your work in that relationship alliance space where you are protected from losing any money. But having said that, you've got lesser margin associated with that. The other 2/3, 1/3 construct only, where you're just building in accordance with what the customer has specified and the other 1/3 is design and construct. As you move from relationship alliance through construct only to design and construct, you are increasing your risk, but you are also increasing your margin. So when we go through our risk assessment criteria, we're looking to ensure that, that equation makes sense that, that balance makes sense. But the business as a whole being spread between those contract types makes a lot of sense from a portfolio standpoint. All right. Well, I'd like to thank you for your time and attention today. And as I said before, I look forward to engaging with you individually as necessary over the coming days, the months and the years ahead. Once again, thank you to Sean for your leadership, and we'll sign off. Thank you very much.